Members of Wisconsin’s House delegation voted 6-2 Wednesday to support H.R. 2965, the reauthorization of the Small Business Innovation Research (SBIR) grant program.

The version passed, 386-41, by the House of Representatives will allow small companies that receive the majority of their financing from venture capital to once again be eligible to compete for these research grants.
Some members of the House voiced concerns that while the maximum dollar amounts for individual SBIR grants was raised, the percentage of money set aside by federal agencies for grants was unchanged. That creates the possibility of fewer overall grants.

The Senate must still act on a different bill (S.1233) before the program can be renewed by a July 31 deadline.

The Wisconsin Technology Council, which has provided perspectives on the success of SBIR to members of the Wisconsin delegation, delivered a letter to state House members before Wednesday’s vote. Here are excerpts from Tech Council President Tom Still’s letter:

“As the House of Representatives prepares to vote on the reauthorization of the Small Business Innovation Research grants program, I want to offer you a few reminders about the importance of this program to the nation as a whole – and to Wisconsin’s tech-based economy.

The SBIR program over 25 years has led to 55,000 patents and the formation of thousands of small businesses nationwide, many of which grew into larger businesses that now employ millions of Americans.

Through the SBIR program, 2.5 percent of the outside research budgets of 11 federal agencies (including the Department of Defense and the National Institutes of Health) are set aside for small businesses. The program, which funds around $2.3 billion in research every year, has helped thousands of small firms turn ideas into products and services.

Over time, however, Wisconsin businesses have lagged in winning SBIR awards. The state’s SBIR success rate is only half the U.S. average. In the fiscal year that ended March 31, 2007, 51 Wisconsin businesses reported 84 awards worth $33.7 million. That was up from 46 companies, 74 awards and $30.5 million reported in 2006. In the year ending March 31, 2008, however, those figures dropped to 43 companies, 83 awards and $29.3 million in grants.

Why isn’t Wisconsin getting more grants? Perhaps because fewer companies can quality as a “small business.” The U.S. Small Business Administration ruled in 2003 that a company no longer qualifies as a small business if venture capital firms have an equity stake of 50 percent of more in the company.

The Biotechnology Industry Organization and the National Venture Capital Association believe that ruling is counter-productive. The high cost of bringing new drugs and other technologies to the market make it necessary for most companies to turn to venture capital firms for money. They argue a 10-person biotech firm in Madison isn’t a “big business” just because venture capital firms with downstream ties to larger corporations own 51 percent of the stock.

Some patient advocacy groups also claim current SBIR rules crimp promising research on chronic diseases by artificially forcing venture capitalists to stay below the 50 percent investment line. An under-capitalized biotech company takes much longer to push a drug through the pipeline – and that means higher costs for the companies as well as patients and consumers.

The Wisconsin Technology Council believes reauthorization of SBIR and the related STTR program makes sense. It also makes sense to allow companies with venture capital backing reasonable access to the program, providing the size of those companies at the time of the grant is small. At a time when many companies are struggling to find investors and to meet their cash requirements, a balanced approach to reauthorizing SBIR will be welcomed.

In summary, we believe the best interests of Wisconsin’s entrepreneurial, investor and technology communities would be served by a SBIR reauthorization act that:

1.      Furthers the historic mission of SBIR, which was created to develop and enable innovative research and development ideas, while simultaneously moving those ideas down the path to creating companies and jobs.
2.      Creates a “bigger pie” in terms of the overall availability of SBIR grant dollars within participating agencies.
3.      Recognizes that the size of grants, regardless of phase, must increase to accommodate the trend toward interdisciplinary research as a vehicle for moving the best ideas ahead.
4.      Facilitates the entry of new companies and technologies into a competitive R&D pipeline while increasing the ability to transition those technologies into valuable products and services.
5.      Provides equal access to the best innovations from qualified companies that fully meet SBIR small business standards.”